[TICK TOCK] How Iran’s deal could blow Nigeria’s Economy Apart

Iran coming to the market could be the “mother of all bears” for Nigeria.

Starting from Dec. 15, the U.S. and the EU will allow any nation to buy Iranian oil, and curbs on trading its refined products, chemicals and natural gas will be eased if the UN inspectors are able to verify its compliance with laid out terms.

Then, the oil-rich nation will be allowed to ramp up energy exports, re-enter the global financial system and access as much as $150 billion in frozen assets.

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Why and how does this affect Nigeria?

One: prices will plummet if the current global growth and demand dynamics persist.

Two: more importantly, Nigeria’s share of the market will shrink even further.

Iran’s massive output capability will tilt the balance of global oil supply:

Here is a refresher on Iran and world oil:

The first crude deposits found in the Middle East were discovered in Iran in 1908.

Proven oil reserves in Iran was ranked 3rd largest in the world as of 2007, accounting for roughly 10% of the world’s total proven petroleum reserves and 13% of OPEC reserves.

Iran is the second-largest proven natural gas reserve holder in the world, behind only Russia. It holds 17% of the world’s proved natural gas reserves and more than one-third of OPEC’s gas reserves

Despite the paucity of investment in new exploration during the sanction years, it still occupies the position of 4^th largest crude reserve holder in the world.

Iran’s oil reserves are estimated at 157.8 billion barrels, enough to supply China’s insatiable demand for more than 40 years.

To understand the scale of this size, even if no new oil was found, Iran’s current reserves could last for 98 years!

The country is also capable of producing 6 million barrels per day, three times larger than Nigeria’s historic peak production of about 2 million barrels a day. Even now, during the sanctions era, it manages to produce about 2.8 million barrels a day, well above Nigeria’s peak production.

Due to the sheer size of its market share and capacity in the past, Iran was considered as one of the 6 ‘energy super powers’, able to influence world markets and global politics to its advantage by manipulating supply.

Iran is seen as the Last frontier for investment – will take the shine as the leading destination for IOC cash.

Iran is the most important market still closed to major investors, according to Renaissance Capital.

Western oil multinationals have mostly been absent from the country since its 1979 Islamic Revolution.

With the lifting of sanctions, Iran will become one of the biggest global prospects for foreign investment, most especially its oil and gas sector. Iran, for its part, sorely needs the foreign money to catch up to the rest of the world. With its current technology, it is only able to extract between 20 – 25 percent of its oil-in-place (the total oil content in its reservoirs).

Implications

Iran already has a huge stockpile of oil, which had to be stored away following the seizure of its exports to trade partners.

According to Bank of America Merrill Lynch, It already has 30 million barrels of oil in tankers.

A lifting of the sanctions (following its compliance with agreement terms) could lead to an instant uptick of 500,000 barrels per day of oil (additional to the preceding amount) in the world supply, to be increased to 1 million barrels 2 in the coming months. About 35 million barrels could be finding its way into the market, which means prices will go south in the process.

Market impact

Iran is on a revenge mission. It is making it resoundingly clear that it aims to regain its lost customers.

According to Iranian oil minister Bijan Namdar Zanganeh, in a statement in May, Iran’s priorities are regaining customers in Asia and then Europe.

Iran’s Asian trade was mostly overtaken by Saudi Arabia and Kuwait.

In Europe, Iranian oil was displaced by Russia, Saudi Arabia and Iraq.

Unfortunately, those 2 same destinations are Nigeria’s most prominent and important markets.

According to NNPC FY 2014 figures, Europe accounted for 45.8 percent of Nigerian crude oil exports, while Asia accounted for 25 percent.

As a side effect to this, Saudi Arabia could be prompted to become more fervent in its strategy of boosting market share, to avoid Iran eroding its share of the market.

Also, the competition among OPEC members for Asian customers will become more intense.

As a marginal player, this outlook is “super-bearish” for Nigeria.

Nigerian sales and market share will shrink further.

Though, one thing that Nigeria has is bit more time.

There’s the high chance that the US congress will oppose the Iran deal, giving Nigeria some time to put house in order.

If Buhari is still talking about reforming the NNPC and plugging oil sector leakages by December, it might already be too late for the country.

By then, the attention should have moved away from oil, into buffering up other different industries, because “oil is dead”.